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Archive for September 21st, 2012

Mitt Romney is catching a lot of flak for his surreptitiously recorded remarks about 47 percent of voters automatically being in the Obama column because they don’t pay federal income tax and thus see themselves as beneficiaries of big government.

Since I’ve warned about dependency and raised the alarm that we risk becoming another Greece unless entitlements are reformed, one might think I agree with the former Massachusetts governor.

Not quite. I think Romney raised an important issue, but he cited the wrong statistic and drew an unwarranted conclusion.

Here’s what I said to Neil Cavuto about the controversy.

To augment on those remarks, here’s where Romney was wrong.

Yes, we have almost half of households not paying federal income tax, and I recognize that there’s a risk on an unhealthy political dynamic if people begin to think they get government for free, but those people are not necessarily looking for freebies from government. Far from it. Many of them have private sector jobs and believe in self reliance and individual responsibility. Or they’re students, retirees, or others who don’t happen to have enough income to pay taxes, but definitely don’t see themselves as wards of the state.

If Romney wanted to be more accurate, he should have cited the share of households receiving goodies from the government. That number also is approaching 50 percent and it probably is much more correlated with the group of people in the country who see the state as a means of living off their fellow citizens. But even that correlation is likely to be very imprecise since some government beneficiaries – such as Social Security recipients – spent their lives in the private sector and are taking benefits simply because they had no choice but to participate in the system.

Moreover, there are some people who pay tax and don’t receive programmatic benefits, yet are part of the proverbial moocher class. Many government bureaucrats obviously would be on that list, as would some union members, trial lawyers, etc.

However, even though Romney picked the wrong statistic and overstated the implications, he indirectly stumbled on a key issue. As seen in both BIS and OECD data, the U.S. is at risk of Greek-style fiscal chaos at some point in the not-too-distant future because of a rising burden of government spending.

I have no idea what share of the population today actually is part of the dependency class that Mitt Romney inarticulately described, but I don’t think I’m going out on limb to say that it has grown during the Bush-Obama years and it will continue to expand.

If we want to maintain American exceptionalism (both in theory and reality), it would be a very good idea to figure out how to avoid having more people trapped in lives of government dependency.

P.S. Here are two amusing cartoons about the dependency mindset, a great Chuck Asay cartoon showing what happens when there’s nothing left to steal, as well as the famous riding-in-the-wagon cartoons produced by a former Cato intern.

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I realize it’s wrong, but I can’t help cheering for France’s socialist president. Francois Hollande seems determined to raise every tax, expand every program, and augment every bit of red tape that afflicts the French economy.

“Let them eat cake with the 20 percent I generously allow them to keep”

I fully expect this to end poorly, but at the risk of admitting that I’m chauvinistically concerned first and foremost with the United States, I think it will be helpful to have France as an example of why class-warfare tax policy is a bad idea.

In other words, even though I’m quite fond of many of the French people I’ve met, I’m willing to sacrifice the people of France to save the people of America.

Having explained what’s at stake, now let’s mock Hollande’s latest bright idea. I’ve previously highlighted his support for a 75 percent income tax rate on the so-called rich. Well, he also wants to increase the wealth tax so that the French government arbitrarily seizes as much as 1.8 percent of a household’s assets every year.

Some people – doubtlessly selfish and evil libertarians – have pointed out that the combination of these two levies could result in someone having an annual tax bill equal to 90 percent, 95 percent, or even more than 100 percent of annual income!

But here’s where Monsieur Hollande shows that he is a magnanimous and thoughtful soul. He has decided, out of the kindness of his heart and with generosity of spirit, that no taxpayer will ever have to pay more than 80 percent of their annual income to the government. All hail Francois the Merciful. He puts the Sun King to shame.

Here’s the relevant excerpt from a Tax-news.com report.

The government is therefore planning to restore the ISF tax to the scale that was applied prior to former French President Nicolas Sarkozy’s 2011 reform. Prior to the reform last year, the tax scale comprised six tax rates varying between 0.55% and 1.8%. This compares with the current simplified ISF tax of 0.25% imposed on assets of between EUR1.3m and EUR3m and 0.5% on assets in excess of EUR3m. The government forecasts additional fiscal revenues from the measure of around EUR1.3bn. Given the constraints that it has been working under, the government aims to re-establish a cap of 80% of income, to ensure that taxpayers do not pay more than 80% of their income in ISF, income tax or social contributions.

But there’s one point I don’t understand. Like Vice President Biden, Hollande has asserted that entrepreneurs, investors, small business owners, and other “rich” taxpayers should welcome high tax rates so they can express their patriotism. So why, then, is he limiting their love of government country to 80 percent?

Monsieur Hollande is also boosting the minimum wage, so I guess it will also be patriotic to be unemployed.

And his predecessor, the de facto socialist Sarkozy, also had an interesting way of looking at the world. When he launched an initiative to clamp down on welfare fraud, he wasn’t talking about going after the people who illegitimately mooch off the government. He was targeting taxpayers who objected to paying for the fraud. Those unpatriotic scoundrels!

Just goes to show that Obama will have to try much harder if he wants America to be more statist than France.

P.S. Hollande’s policies already are having an impact. France’s richest person apparently isn’t very “patriotic” and has decided to move where he will be allowed to keep more than 20 percent of his annual income.

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